Are You Pricing In A 50 bp Rise?
At this point in the
game we know why the FX markets are range bound, the Fed meeting next
week, and of course the government handover in Iraq. However, we know what a
powder keg Iraq will likely be, what is still not clear is how the Fed will
address Wall Street. As odd as it may seem, this carries more weight presently
than does the situation in Iraq.
It is a foregone conclusion that a 25 basis point
hike is in store. While some have priced in a 50 bp hike, it goes against all
recent commentary from Fed officials recently as well as fed funds futures which
are priced for only a 25 bp hike. The Fed has no interest in jolting the
markets, 1994 is a valuable lesson that will prevent such an event.Â
Nonetheless, the Fed is in a challenging situation, their statement will need to
allow for the Fed to react swiftly to either inflation or deflation threats.
While this may sound like the splitting of hairs,
it is critical for all markets, particularly debt and FX. Any deviation from
what is described above will offer nimble traders some great opportunities.
The Durable Goods and Jobless Claims were just
released and they came in a bit worse than expected. The data has been quite
mixed lately which only adds further evidence that the Fed is unlikely to be too
aggressive in their monetary policy at present time.
Beyond that, there is not much to discuss. I did
establish another short in the USD/JPY
(108.40) yesterday afternoon on a technical break as well as anticipating a
strong Tankan Survey out of Japan. The
trade has played out nicely so far based on both of the original reasons for the
trade. Ideally a move to 105 is what I am looking for, but with the BoJ
discussing FX intervention again, traders are cautious.
As always, feel free to send me your comments and
questions.